OGC Op. No. 09-12-01
The Office of General Counsel issued the following opinion December 10, 2009, representing the position of the New York State Insurance Department.
RE: Use of Debit Cards to Pay Property/Casualty Insurance Claims
May an insurer issue debit cards to claimants on a voluntary basis in accordance with the Program in lieu of issuing settlement checks to pay property/casualty insurance claims?
Yes. An insurer may issue debit cards to claimants on a voluntary basis in accordance with the Program in lieu of issuing settlement checks to pay property/casualty insurance claims, provided that the insurer: i) makes the funds accessible to the claimant within the applicable timeframes for paying settlements; ii) fully explains all aspects of the Program, including the disclosure of any potential fees to the claimant; iii) makes clear that the claimant's participation in the Program is voluntary and that the claimant must opt into the Program; and iv) ensures that the claimant has easy and ready access to the funds.
The inquirer reports that the ABC Prepaid Card (the “Prepaid Card”) is a reloadable,1 value-added card (similar to a debit card) that was initially designed to pay workers' compensation indemnity “lost time” claims. The New York State Workers’ Compensation Board, in consultation with the New York State Insurance Department, approved the Program for payment of workers’ compensation claims. The inquirer’s client now seeks to expand the Program to permit insurers to pay all property/casualty claims by using the Prepaid Card.
In lieu of mailing settlement checks to the claimant, the insurer proposes to issue a prepaid Visa card to a claimant on a voluntary basis. The claimant may opt to receive payment by other methods, such as by check, if for any reason the claimant does not wish to receive the Prepaid Card. Additionally, in situations where the use of the Prepaid Card would be inappropriate (i.e., where there is a loss payee involved), the insurer would issue a settlement check instead of the Prepaid Card. The insurer would deposit funds directly into an insurer-owned funding account, and the insurer would be responsible for funding the account for purposes of paying claims. The insurer proposes to direct a bank associated with the Program to open a non-interest bearing account in the claimant’s name, and transfer funds from the funding account to the claimant’s account. The bank will distribute the prepaid debit cards directly to the claimant, which the claimant can use to access settlement funds.
The maximum amount that the insurer may load on the card is $25,000. The maximum cumulative amount that the claimant would be able to withdraw from an ATM per day is $1,000.2 However, the claimant could withdraw the total amount available on the card by requesting a cash disbursement through a participating bank, via an over-the-counter withdrawal. The inquirer reports that a participating bank is one that has a relationship with Visa.
The inquirer asserts that the Program offers claimants many advantages over traditional payment methods such as by check, including immediate access to funds, savings of cash checking fees, and access to millions of ATMs and Visa merchants, 24-hour toll free bilingual customer support as well as security from theft or loss. The inquirer suggests that the Program is especially beneficial to millions of Americans that either have no bank accounts, are unable to obtain a credit card on their own, or who make little use of banking services.
The Program uses a large network of ATMs (Visa, PLUS, STAR, Starsf, Allpoint, NYCE or PULSE). Claimants have access to ATMs in places where they live and work, including national and regional retailers like Costco, CVS, ExxonMobil, Target and Walgreens. The inquirer reports that the STARsf network has more than 32,000 ATMs available across the nation, and is the largest network available today - larger than any single bank ATM network in the country.
The inquirer further suggests that insurers also benefit from the Program by reducing the fraud exposure from handling checks and by significantly lowering their cost of claim operations. Additionally, he reports that the Program will comply with privacy requirements with regard to the disclosure of the claimant’s information to third parties, and provide the claimant with Regulation E3 protection.
The package that the Program mails to its customers sets forth the following schedule of potential fees and charges for the Prepaid Card:
Fees within the United States
1. ATM (Per withdrawal) - One free withdrawal for each value load (meaning each payment that the insurer makes to the card). For any additional transactions, the bank charges the claimant $1.50 per withdrawal.
2. ATM Balance Inquiry (per inquiry) - Free
3. Point of sale purchase (meaning purchases from stores or merchants) (per transaction) - Free
4. Cash Disbursement (per withdrawal; over-the-counter (bank teller) withdrawal) - Free
Fees outside the United States
1. ATM (per withdrawal or balance inquiry) - $3.00
2. Point of sale purchase (per transaction) - $3.00
General Service Fees (Applicable within and outside the United States)
1. Paper Statement (per monthly statement) - $2.50 (Note: An electronic statement is available free online)
2. Card Replacement Fee (per card; assessed if card is lost or for any other reason) - $10.00
3. Card Replacement Fee (if the card is stolen or damaged) - Free
4. Expedited Card Delivery (per delivery envelope) - $25.00
5. Overdraft (per transaction) - $25.00 (If the claimant attempts to make a transaction that exceeds the current available balance on the card, the bank may disapprove the transaction. In the event that the bank, in its sole discretion, settles or pays the transaction, the claimant will be responsible for paying the overdrawn amount and any related fee.)
6. Web and Automated Phone Inquiries - Free
7. Live Call Center Support - Free
Although the claimant may use the network of ATMs to withdraw settlement funds free of charge, if the claimant elects to withdraw funds at an ATM that does not display the logos set forth above, the claimant could incur additional fees and charges by the ATM operator. Additionally, if the claimant obtains cash from a bank teller at a non-participating bank, the bank may charge a fee, and other third parties, such as merchants may also charge fees for using the Prepaid Card for point of sale transactions.
The inquirer asks whether the Program, as described above, comports with the Insurance Law and regulations promulgated thereunder.
Section 216.6 of N.Y. Comp. Codes R. & Regs. tit.11, Part 216 (Regulation 64) is relevant to the inquiry. That regulation sets forth standards for the prompt, fair and equitable settlements, and reads in pertinent part, as follows:
(f) Every insurer shall pay any amount finally agreed upon in settlement of all or part of any claim not later than five business days from the receipt of such agreement by the insurer, or from the date of the performance by the claimant of any condition set by such agreement, whichever is later. . .
Although § 216.6 of Regulation 64 establishes certain timeframes for the payment of insurance settlements, it does not require a specific method of making such payment. Therefore, there is no prohibition against an insurer issuing a debit card, in lieu of issuing settlement checks, as a method of paying property/casualty insurance claims. Nonetheless, there are certain safeguards and protections that should be afforded to claimants to ensure that there are no costs, fees and other items that, without explanation, would limit the actual settlement amount or otherwise make it difficult for the claimant to actually collect payment.
Indeed, the Department has previously opined that an insurer may deposit settlement funds into a checking account and issue a checkbook to the beneficiary, so long as the insurer follows the applicable timeframes for paying settlements, fully explains the practice to the claimant, and offers this form of payment to the recipient on a voluntary basis. Implicit in the Department’s analysis is that the claimant should not have any burdensome obstacles to access the funds once the insurer pays the claim. Inherent in a direct deposit arrangement is that the claimant will have easy and ready access to the funds because the insurer deposits the funds directly into a checking account in the claimant’s name. See OGC Opinion No. 04-01-09 (January 7, 2004). As the inquirer notes, the Program is analogous to a direct deposit arrangement, in that the insurer deposits funds directly into an account maintained by the bank in the claimant’s name and the claimant may use any bank that has a relationship with Visa, and will thus have easy and ready access to these funds. While there are potential fees associated with the Program, the claimant will have easy and ready access to participating banks, which will enable the claimant to avoid such fees and the claimant will not be disadvantaged in any way.
In addition, 11 NYCRR § 216.3(c) is also relevant to the inquiry. That provision reads, in relevant part, as follows:
Any payment, settlement or offer of settlement which, without explanation, does not include all amounts which should be included according to the claim filed by the claimant and investigated by the insurer shall, provided it is within the policy limits, be deemed to be a communication which misrepresents a pertinent policy provision.
Accordingly, in light of the potential fees that a claimant may incur in connection with using the Prepaid Card, which may lessen the amount of the settlement that the claimant receives, the insurer must make full disclosure of all aspects of the Program to claimants, including providing claimants with a schedule of potential fees.
In sum, an insurer may issue debit cards to claimants on a voluntary basis in lieu of issuing settlement checks to pay property/casualty insurance claims, provided that the insurer: i) makes the funds accessible to the claimant within the applicable timeframes for paying settlements; ii) fully explains all aspects of the Program, including the disclosure of any potential fees to claimants; iii) makes clear that the claimant’s participation in the Program is entirely voluntary and that the claimant must opt into the Program; and iv) ensures the claimant has easy and ready access to the funds.
For further information you may contact Associate Attorney Pascale Jean-Baptiste at the New York City Office.
1 That is, the insurer may add additional funds to the card.
2 The insurer may, in its discretion, increase the maximum load amount or daily limit on a program-wide basis. However, the insurer may not do so on an individual basis, as this would be discriminatory in violation of Article 23 of the Insurance Law.
3 See 12 CFR Part 205 (Regulation E), which establishes the basic rights, liabilities, and responsibilities of consumers who use electronic fund transfer services and of financial institutions which offer such services.